The ONLY policy a government can adopt that would not cause speculative booms and widespread collapse is to abstain from intervention. Unfortunately, that train left the station long ago (& not on the John Galt Line)

the idea that Friedman was a monetarist is misleading at best. The statement he made about money growing at the same rate as the economy or a fixed amt per year, was in response to a question -and he prefaced his comments by saying there should not be a Federal Reserve. Not trying to defend everything Friedman said, but this is often misquoted. Db made it himself once. Our son, Aristo was the one to point that out. .

No comment I can make would be better than to refer all to Capitalism: The Unkown Ideal by Ayn Rand. For those unfamiliar with it, you're welcome. There's no better text or lecture on the topic. (note: I spent 4 years getting my education in Economics, and this one book was better than all of my studies prior to it)...
I'll still make comments, but Ayn's work is the best

Well, Friedman wasn't a supporter of the gold standard. So certainly he wasn't an Austrian. I get your points tho.

All real economic growth comes from investment of real, hard earned money. For example, a business can earn a million dollars. Basically, they can do one of three things. They can spend it. They can invest it in themselves. And lastly, they can stick it in a bank account. Remember, that every dollar spent in the economy changes hands a further 2.3x, thus driving up the economy. Also remember that when you stick money in a bank, and the interest rates are normal, the bank loans out this money to other people and businesses. Theoretically, if every person who got a loan from the bank turned around and stuck it in the bank, $1 can drive a further $9 into the money supply. But this is unrealistic to expect this much.

All of this is based on the assumption that every single dollar flowing through the economy was properly earned, properly spent, or properly loaned out.

The largest driver of booms and busts is the Federal Reserve. The Fed, a private profit-seeking institution, basically loans out money for a really low interest rate. Sometimes even a negative interest rate, basically giving money away. This money isn't real money as I highlighted in the assumption above.

This has several negative aspects. First is that it makes it economically unfeasible for Banks to loan out money to people and businesses. They can't possible shoulder the risk for such a low rate. Second, banks offer little to no interest rates for saving money there, meaning that any money saved loses "value" to inflation. Third, and most importantly, it means that there is a ton of "unearned" money flowing through the economy.

And since the laws of supply and demand reign supreme, even with money, the Federal Reserve Money creates a boom. The value of whatever good, service, commodity or item drives higher and higher until it either far out paces the increase in money supply, or people who are dealing in real money get shut out of the market entirely. Then the bust happens.


The problem comes after the bust. The Federal Reserve believes it has to fix the bust, and resort to methods that caused the boom in the first place. Thus begins the cycle.

The link provided doesn't require itunes. It will play right on your browser.

Please post a link that doesn't require itunes.

Hello justin_mohr_show,
Yes. The Keynesians do not respect the boom and bust cycle. Their hubris allows them to believe they can meddle in the economy. Unfortunately, in so doing, they prolong the bust cycles. When Obama says he must come in and “mop up the mess,” in a nutshell, he and those that think as he does do not allow for the necessary corrections by virtue of “creative destruction.”
Regards,
O.A.

Great explanation Justin. Simple and easy to understand. I hope you don't mind but I posted your link to facebook.

Keep up the good work Justin!